BSkyB: “A spiral of increasing costs”

The past few weeks have not been good for British pay-TV giant BSkyB. This week has seen BSkyB lose a Court battle with rival Virgin Media, and the growing success of arch-rival BT Sport is worrying for Sky.

Fighting back against the threat posed by BT Sport has seen Sky start to secure a large number of rights for as many key sporting assets as possible. A note to clients from investment bankers Berenberg (which rates BSkyB as “SELL”) says BSkyB faces a “massive source of uncertainty” as it prepares to probably pay a record sum for upcoming English Premier League football rights.

Berenberg says BSkyB ideally wants the auction for the football rights to take place sooner than later in order to get the process over with and for the market to settle back down whatever the end result. BT Sport, on the other hand, is in no rush and is enjoying watching BSkyB squirm.

The bank’s note suggests that the rights recently acquired by BSkyB were not cheap and have come at a cost. “We understand that, in many cases, the rights owner used BT as a stick with which to beat BSkyB. As a result, there was meaningful inflation for many of these deals, putting even more pressure on BSkyB, which needs savings to offset current inflation in Premier League rights, let alone that related to the next renewal (+60 per cent we estimate),” states Berenberg.

“With cost inflation in non-Premier League sports, and an impending battle over the Premier League itself, we see BSkyB stuck in a spiral of increasing costs,” says the bank.